Fitch ups Geo Energy

Fitch Ratings said it upgraded Geo Energy Resources Ltd.’s long-term issuer default rating to CCC from CC. The agency also raised the rating on the outstanding senior unsecured guaranteed notes of Geo’s subsidiary, Geo Coal International Pte. Ltd., to CCC from CC with an RR4 recovery rating. Geo Energy guarantees the notes.

“The upgrade is based on Geo’s improved liquidity as the company can avoid investors exercising a put option in April 2021 on its $300 million note after it met a coal reserve requirement of 80 million tonnes (mt). Geo’s latest compliant Joint Ore Reserves Committee report indicated its operating reserves at its PT Sungai Danau Jaya (SDJ) and PT Tanah Bumbu Resources (TBR) mines in Indonesia totaled 86.4mt as of Oct. 31, 2020. Geo in August 2020 received mining license extensions for the SDJ and TBR mines to beyond 2025, which was also a condition under the put option. These pushed the note repayment to its maturity date in October 2022, eliminating the short-term redemption or refinancing risk,” Fitch said in a press release.

The agency noted Geo bought back almost $240 million of the notes at a discount using its internal cash. “This has materially reduced the redemption pressure to only $59 million on the maturity date, which we expect Geo to be able to repay with internal cash, based on Fitch’s coal-price assumptions,” the agency said.

However, Fitch noted the CCC rating reflects limited headroom for Geo’s liquidity, should its operating cash flow decline due to lower realized coal prices and/or any shortfall in business performance, as the company has no backup long-term external liquidity facilities.

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